Concept: Fully Governance-less Lending Protocol
English (this) | 日本語版
Background
Lending protocols are important primitives in DeFi, along with DEX, and have amassed large liquidity, but some problems remain. Existing lending protocols require a governance voting to update any parameters such as collateral factor and assets supported. However, many protocols are still not decentralized and are governed by a few. Even if they were decentralized, the flexibility to change parameters in response to the market would place a heavy burden on governance participants.
Since such parameters apply to all users, they cannot participate in the market with the risk profile they each desire. Such uniform approaches have led to capital inefficiency. With Fuse by Rari Capital, users can create their own pools, but liquidity is fragmented and markets can be destabilized. So a protocol is needed that can bring together liquidity with different risk profile.
Key Features
Floating collateral factor: The lender selects a tranche for CF(collateral factor) of collateral assets when depositing an asset.
The borrower borrows from the highest to lowest CF tranche and Floating CF follows the average value of CF of the utilized assets as the target value.
Risk profile: Interest is distributed to the lenders of each tranche based on Interest-WeightingFactor. Interest-WF is 1 for the lowest CF tranche among the utilized tranches and increases for the higher CF tranches.
In the event of NPL(Non-performing loan), NPL is distributed to the lenders of each tranche based on NPL-WeightingFactor. NPL-WF is determined by the impact of the tranche on Floating CF.
Competitive interest rate: This protocol has no reserve fund. So the protocol provides lenders higher interest than ones that store 10–30% of interest in a reserve fund.
Permission-less listing: Users can list any asset by using Uniswap TWAP as an oracle.
Risk Mitigration
Other protocols manage for liquidity risk by increasing the interest rate to encourage repayments of loans when the utilization rate increases, but this protocol additionally manages for NPL risk by requiring more collateral by lowering Floating CF.
There is a limit to the change in Floating CF per block, so it changes moderately to target value. This is to prevent Floating CF from dropping in the short term and collateral assets from being liquidated in the following scenarios:
- Large withdrawal from high CF tranche
- Large borrowing exceeding the capacity
To prevent lenders of high CF tranches from escaping their burden of losses by making withdrawals, a small portion of their assets may be locked up according to VaR (Value at Risk) when the NPL risk increases. VaR is expected to be zero for most tranches and a small portion of deposits unless extremely high CF tranches. This is an alternative to a reserve fund that other protocols reserve 10-30% of interest for, and provides lenders higher interest rate.
Locked assets will be unlocked as Floating CF lowers progressively through withdrawals. Also they will be unlocked if VaR decreases or if other lenders make deposits.
This is just a draft. There may be some issues or vulnerability, so I’d appreciate it if you could give me your feedback.
If you’re interested in this protocol (especially engineers!), please contact me!
Twitter: https://twitter.com/date_toya ,https://twitter.com/FULLY_Protocol
Discord: https://discord.gg/qCzW3YBHPm
E-mail: fully.protocol@gmail.com